Reverse DCF Calculator

Our Reverse DCF Calculator, powered by the proven Discounted Cash Flow (DCF) model, uncovers the market’s growth rate assumptions for any stock—from local leaders to international contenders. Reveal the underlying metrics behind a stock’s current price and see if these expectations match your investment outlook. Make informed decisions with a tool that offers global perspective.

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Understanding the Reverse DCF Calculator

The Reverse DCF Calculator is a powerful tool that inverts the traditional DCF (Discounted Cash Flow) methodology. Instead of projecting future cash flows to estimate a stock’s intrinsic value, it starts with the current stock price and calculates the growth rate implied by that valuation. This unique approach offers valuable insights into market sentiment and expectations.

Here’s how the Reverse DCF Calculator compares to a traditional DCF calculator (or Intrinsic Value Calculator):

Traditional DCF: Requires inputs about a business’s future growth, margins, terminal value, and discount rate to estimate the stock’s intrinsic value.
Reverse DCF: Uses the current stock price, terminal value multiple, and discount rate to determine the implied growth rate in free cash flow per share.

By using the Reverse DCF Calculator, investors can gauge whether the market’s growth expectations for a stock are realistic or misaligned with their own assessment of the business’s prospects. This information can be invaluable in identifying potential mispricing opportunities in the market.

How to use the Reverse DCF Calculator

Reverse DCF Calculator Demo: Unveiling Market Growth Expectations

Watch this video on YouTube

Click on the video and expand to full screen to view a demo of the Reverse DCF Calculator.

Detailed instructions are also provided below the dashboard.

If you need a refresher on any of the financial metrics used, our Stock Investing Glossary is just a click away.

Our Reverse DCF Calculator uses a discounted cash flow (DCF) model in reverse to calculate the implied free cash flow per share growth based on your custom assumptions. Here’s how it works:

Enter the business name or stock symbol in the search box in the ‘Business Search’ drop down (see video for guidance)
Input the Discount Rate (your desired rate of return) for the next 10 years and the terminal Price / FCF ratio in 10 years time (using the historical results on the right as a guide).
Immediately see the calculated implied free cash flow per share growth rate, which you can compare to historical free cash flow growth.
Based on your understanding of the business, make an assessment as to whether the implied free cash flow per share growth rate is likely to be achieved over the next 10 years. This assessment will determine if the current price is undervalued or overvalued.

Reverse DCF Calculator Dashboard

Our data is refreshed every three hours to ensure you have up-to-date information for your investment decisions. Bookmark this page and check in regularly to identify the latest opportunities.

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The Reverse DCF Calculator is a guide only. The accuracy of the data in this website is not guaranteed and it is highly recommended that you perform your own due diligence before making an investment decision by directly reviewing the business’s annual report and accompanying financial statements. The implied free cash flow per share growth rate is dependent on the assumptions you enter and past financial performance does not necessarily predict the future.

Detailed instructions for the Reverse DCF Calculator

Business Search

Search for the desired business in the ‘Business Search’ dropdown using the search box (see screenshot example).

Screenshot Example of Business Search

User Inputs

Select the annual discount rate which is use to discount the projected free cash flows back to today. The discount rate is your required annual rate of return which should be based on your available investment opportunities. The default discount rate is 12% p.a. as you would expect to achieve a 9% p.a. return from a diversified equity index fund over the long term and an extra 3% p.a. is added for a margin of safety. If you cannot outperform an equity index fund with a reasonable margin of safety then it’s preferable to invest in the equity index fund (which is diversified across many stocks).
Select the terminal Price / FCF ratio in 10 years time which is used to calculate the terminal value of the business. The default terminal Price / FCF ratio is 15 as this is around the historical average for all stocks. However, you may adjust this to be higher or lower based on your expectations for the stock’s future. You may use the historical Price / FCF ratio shown in the right side of the dashboard as a guide. Applying a lower terminal P/FCF ratio is more conservative.

Interpreting the results

The Implied FCF Growth Rate represents the growth in free cash flow per share over the next 10 years that is implied by the current stock price. That is, it represents the annualised free cash flow per share growth rate that is required for the projected free cash flows and terminal value to equate to the current stock price after being discounted back to today using the assumed discount rate.

Other information

The dashboard is best viewed on a desktop device. For the best mobile phone experience, view the dashboard using landscape orientation.

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